Puigdemont was arrested on a Spanish-issued warrant upon entering Germany on 25 March as he attempted to drive from Finland to Belgium, where he currently resides. Spain accuses the Catalan separatist of rebellion and corruption after he organised an unsanctioned independence referendum.
The Schleswig court said that it considered a charge of misuse of public funds sufficient grounds for an extradition, but that a charge of “rebellion” was not, because the comparable German charge of treason specifies violence.
Proceedings to decide whether to extradite him on corruption charges could continue, it said.
Or to put it another way: Puigdemont is innocent of "rebellion" because the only violence in Catalonia was perpetrated by the Spanish government. It's significant because it means that if he is extradited, Spain cannot try him for that crime any more. When faced with this prospect in Belgium last year, Spain withdrew their arrest warrant (effectively gaming the European Arrest Warrant system in an effort to shop for jurisdiction). But now there's an actual court ruling on record calling their charges bullshit, and if they try that again, other courts will be able to take formal notice of it. Whoops.
Meanwhile, Belgium has opened an investigation into the Spanish intelligence services for illegally spying on their territory. It turns out that using a geotracker on someone's car is illegal without a warrant in Belgium. Whether a Spanish warrant is sufficient (or whether there even is one) is an open question, but hopefully it will cause Spain to think more carefully about spying on Catalan exiles in future.